Many small and medium sized businesses are playing a ‘lottery’ with energy purchasing because of a reluctance to move from fixed to flexible contracts, says business energy broker ENER-G Procurement, which is making the transition easier.
“The traditional approach to buying an annual fixed-price energy contract is a bit of ‘lottery’ since the price depends largely on the wholesale price at the time you lock in”, said Mark Alston, Director of ENER-G Procurement. “It’s like buying your car’s fuel for the whole of next year at today’s pump price and gambling that you have chosen the best day.”
The alternative is flexible purchasing, which allows organisations to purchase smaller chunks of energy throughout the length of the contract – aiming to buy during price dips and avoid costly spikes.
ENER-G has made it easier for organisations of all sizes to become flexible energy purchasers with the launch of its MyFlex products. This includes a collective energy purchasing product that enables small users to combine their purchasing power , buying ‘little and often’ as part of a managed flexible purchasing consortium service.
“There’s a misconception that you have to spend millions to access flexible purchasing”, explained Mark Alston. “The volume thresholds have halved during the last couple of years and are now down as low as 7GWh, which would equate to an annual spend of around £500k. But, of course, those MyFlex Collective customers have no volume restrictions at all.”
The ENER-G MyFlex product range enables customers to purchase their energy in a way that suits their business, including a hybrid ‘Flex to Fixed’ product, where prices are set by multiple advance purchases and then fixed for a 12 month period. There’s also a ‘Fixed to Flex’ option, where buying can take place once a year, with an ability to sell-back or re-purchase at opportune points in the market. Fully Flexible product options are also available.
The traditional benefit of fixed purchasing is budget certainty, which has been eroded over recent years due to the growth in network charges and green levies. Most suppliers stipulate their right to ‘pass through’ any increases in these costs. The growth of these non-energy costs, together with the volatility of the wholesale energy market, has also driven up the supplier risk premium on fixed contracts.
Mark Alston added: “While flexible purchasing is not for organisations who demand 100% budget certainty, it does allow risk to be capped by introducing parameters into the purchasing strategy to protect budgets. We would urge organisations to consider the wider options and the competitive advantage they can achieve through flexible contracts and by taking a longer, more strategic approach to their energy purchasing.”
ENER-G Procurement is an independent energy purchasing specialist and a founding member of the Utilities Intermediaries Association (UIA). ENER-G works with UK manufacturers’ organisation EEF to provide the EEF Energy Services, and operates the Chamber Utilities™ service to a number of Chambers of Commerce across England.
Visit the ENER-G blog to find out more about collective energy purchasing